Russia Country Market
Insights and Opportunities
Green Tech / Energy Efficiency Sector
Overview: Russia’s economy utilizes three times more energy than European OECD countries and Japan. Part of this is explained by colder temperatures throughout Russia and a higher level of demand and consumption. However, the lack of energy efficiency in building construction and materials, and outdated equipment and factories, accounts for a large percentage of this waste. The energy savings potential is estimated at over 45% of Russia’s current energy consumption.
In 1994, the City of Moscow adopted new construction standards to improve the energy efficiency in buildings. Over half of Russia’s regional governments subsequently followed the same course of action.
Russia is beginning to focus more on issues related to energy efficiency and green building and this is supported by a 2009 decree vowing to reduce Russia's energy consumption by 40% by the year 2020. A new Federal Law called "On Energy Savings and Improving Energy Efficiency” was approved on November 18, 2009. It defines requirements for Russian regional and local energy saving programs, as well as requirements related to energy efficiency in buildings and energy audits. The law focuses on areas related to light bulb usage and utility metering. In order to save costs associated with monthly electricity bills, both in the private and public sectors, Russia is planning to reduce the usage of incandescent bulbs and gradually phase them out completely. Also, individual apartment water metering is planned as a way to conserve both water and energy.
The development of sustainable buildings and compliance with world environmental standards is still in its nascent stage in Russia. Experts agree that it is very hard to say when green products will gain popularity in Russia, as at the moment the Russian population is not very concerned with environmental issues and what products they buy or what methods are used to dispose of those products.
Most developers in Russia are also not focused on utilizing green technologies. Their main aim is to spend as little as possible on construction and to sell for as much as possible. Given that the market does not yet appear to have sufficient demand for “greener” buildings, developers do not have significant incentive to offer properties with such features. Russians believe that green products only increase the cost of the property. According to NCC Group, a Scandinavian developer with a significant presence in Russia, the cost for a project which uses green technologies increases by 10-15%; however, in the long run such technologies save operational and other costs.
Despite the still budding sector, it is noteworthy that energy efficiency is not a completely unheard of concept in Russia. For example, during Soviet times, the Russian central heating system was set up with a two-door entering design so as not to allow warm air to escape the building. Additionally, old Soviet buildings are considered to have been built with good insulation.
As for green building standards, Russia is currently using both BREEAM (Building Research Establishment Environmental Assessment Method) and LEED (Leadership in Energy and Environmental Design). BREEAM appears more popular because it can be adapted specifically to any country according to cultural and climate standards, as well as local laws and rules. Currently, four business centers in the Moscow area are certified according to BREEAM standards. These include Ducat Place III (http://www.hines.com), Arcus Space (http://www.clearlink.ru), Coalco (http://www.coalco.ru) and White Square (http://www.aiglincoln.com). Approximately ten more buildings in Moscow and St. Petersburg are exploring BREEAM and LEED certification. Additionally, the SKF bearing factory in Tver is registered to be LEED certified.
In addition to BREEAM or LEED certification, there are several companies leading the path to energy efficient projects in Russia. Since March 2008, YIT (http://www.yit.ru) has been utilizing energy efficient technologies in the construction of its projects. In the third quarter of 2009, Horus Capital (http://www.horus.ru) opened the Lootch Business Center (http://www.workingprime.com), an old factory that was converted into an office building and utilizes energy efficient technologies. AECOM (http://www.aecom.com) applied environmentally friendly techniques to its GE fit-out projects (called Ecomagination) for GE Energy at LeFort and GE Healthcare in Moscow City.
Opportunities: Eventually, the Russian market will become “green” and opportunities for manufacturers and suppliers of various sustainable and energy efficient products and technologies will grow. Possibilities for future growth areas include insulation and heating systems. Non-toxic building products will likely gain popularity. “Smart home” technology should also attract a great deal of interest from Russian consumers. To be successful in the Russian market, it will be necessary to make a significant capital and time investment to promote such technologies in Russia.
For the time being, there are few companies beginning to include new green technologies in building plans and other projects. However, it is believed that opportunities in this market will grow substantially over the coming years. “As the market becomes more mature, the sophistication of the buyer will increase and demand will move towards utilizing the latest technology”. Therefore, local customers will eventually turn towards sustainable building, construction methods and products. Although “the low cost of energy resources has not forced the government or the public to move quickly to accept new sustainable technologies, as the financial and environmental benefits of conserving energy become more widely known, the public will begin to expect them.”
The Sochi 2014 Olympic Games are just one example of where energy saving technologies will be implemented - the International Olympic Committee has mandated that certain standards be met. If such technologies prove to be successful in Russia, this could be an important catalyst in turning Russia “green.” Further, there are several large-scale green sustainable projects that will be soon built in Russia and may present some opportunities for U.S. exporters.
NCC (http://www.ncc-spb.ru/en) is building a housing development in St. Petersburg called Swedish Krona. This will be an apartment block area with a park, playgrounds, sport facilities, shops and parking. NCC is planning to use various new construction technologies, including energy efficient materials, to build a comfortable city living place that meets European standards.
BTK (www.btkdevelopment.ru) is in the process of developing a project for an energy efficient office building in the center of St. Petersburg (2000 sq. meters). The company is planning to build this project according to LEED standards and receive the appropriate certification.
Setl City (www.setlcity.ru) is beginning to develop a project called Sem Stolits (www.7stolic.ru), which will utilize the principles of energy efficiency including a collector heating and water supply system, specially designed sanitation facilities and energy-efficient insulation and windows.